Zenabis Global Inc (TSX-V:ZENA) announced on Monday that it is going to be partnering with a pharmaceutical company based out of Germany, Farmako. The two companies are going to be working together on a couple of initiatives, including selling CBD isolate oil in Canada along with selling cannabis to the German medical market.
It was a welcome development by investors who have seen the stock fall off a cliff lately. Zenabis was up 8% on Monday as the news injected some much-needed optimism for The Company. Let’s take a closer look at this partnership to see what it means for Zenabis and why it could be a great opportunity.
Probably the most intriguing part of this deal is that Farmako is going to biosynthetically produce a very pure form of CBD oil. By relying on biosynthesis rather than cultivation, the lab-created CBD could be much lower in cost while also providing patients with higher quality CBD. While we’ve yet to see how effective and popular CBD isolate will be with consumers, but there’s significant potential there for Zenabis as it could have a big advantage in the industry over its peers.
Cultivation is a lot more expensive and requires a lot more space, and so any way to cut down on those costs while improving the quality and the speed at which CBD products are produced will be a big win for Zenabis.
While Zenabis is committed to producing both hemp- and cannabis-derived CBD products, we are thrilled to have signed the very first commercial agreement globally of its kind for the purchase of biosynthetic cannabinoids. We are purchasing the CBD isolates from Farmako at an incredibly low cost, which will allow us to tap into the rapidly growing Canadian CBD market by supplying products that will be priced much more competitively than current market offerings. This partnership will also enable Zenabis to supply high-quality medical cannabis into Germany, one of the largest medical cannabis markets in the world, thereby establishing our position in the European cannabis market
– Andrew Grieve, CEO of Zenabis
The terms of the deal state that it is for three years and that Zenabis will receive a total of 36,000 kg of CBD, with the first batch expected to be in Q4 of this year.
Selling to the German market
The other big part of this arrangement is for Zenabis’ indoor cultivated cannabis to be sold in Germany, one of the biggest medical markets in the European Union. The key here is for Zenabis to meet European Union Goods Manufacturing Practices (EU GMP), which is necessary to be able to sell the cannabis products to Germany. Under the terms, Zenabis would supply as much as 5,000 kg annually to Farmako who would then sell the products. Like with the CBD oil agreement, the first shipments from Zenabis are slated for Q4.
The German market is heavily dependent on importing cannabis as it does not have any production domestically that it can rely on. And so for Zenabis, it creates a great opportunity to be a key supplier in a big foreign market.
Takeaway for investors
These are great developments for Zenabis and if this partnership with Farmako progresses, it could be a big win for both sides. Zenabis would be able to tap into a major European market and could also have big first-mover advantages in Canada, selling CBD isolate that could be in demand from medical marijuana patients. If it works out as expected, it could result in a lot of sales growth for Zenabis, and with strong margins as well.